WASHINGTON (Reuters) - A new fund being developed by the World Bank would pay developing countries hundreds of millions of dollars for protecting and replanting tropical forests, which store huge amounts of carbon that causes climate change.

The Forest Carbon Partnership Facility (FCPF), announced by the World Bank on Thursday, will be part of U.N. climate change negotiations in Bali in December to shape a global agreement for when the Kyoto Protocol expires in 2012.

"A lot will depend on what the global agreement will be, but we think potentially this could yield a lot of money," Joelle Chassard, manager of the World Bank's carbon finance unit, told Reuters in an interview.

Chassard said the new facility would provide financial incentives to reduce greenhouse gas emissions from deforestation.

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The facility has already attracted interest from more than a dozen developing countries including Indonesia, Brazil and several in Africa's Congo River basin. The bank expects to first test the mechanism in three to five countries.

Deforestation contributes 20 percent of total greenhouse gas emissions, more than all the world's cars, trucks, trains and airplanes combined. Environmental groups say that protecting tropical forests from cutting and burning is the most direct and fastest way to mitigate some of the impact of climate change.

By creating economic value for tropical forests, the facility can help developing countries such as Liberia, Democratic Republic of Congo, Guyana, Suriname and others generate new revenue for poverty alleviation while maintaining the natural benefits such as fresh water, food and medicines that the forests provide local populations.

Chassard described the new facility as a research and development tool to determine practical responses to the problem of deforestation. She said the facility would test mechanisms that could encourage governments to reduce deforestation.

Part of the testing involves providing participating countries with the means to prove they are reducing rates of deforestation.

"It will involve a lot of work on the ground with countries to establish both a physical and institutional infrastructure to demonstrate that they actually avoid deforestation," she said. "Countries will have to demonstrate that physically they have reduced the rate of deforestation."

Such a task will not be easy, Chassard acknowledged. It will require countries to determine the present state of their forests in order to measure future deforestation rates, she said. In addition, they have to establish the carbon content in forests where not all trees are equal storehouses, she added.

"Countries will need to have the means to ensure they are managing the rate of deforestation throughout the country. You don't want to preserve forests in one part of the country when another region is being cut significantly," she added.

The fund initially will have $300 million to finance emission reductions and help prepare countries with the necessary tools to monitor the forests.

The global carbon market grew to an estimated $30 billion last year, three times more than in 2005. Carbon funds were created under the Kyoto Protocol as a way to reduce carbon emissions by encouraging governments and the private sector to offset their climate footprint by purchasing carbon credits.